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Consumers: Automobile Insurance Terms

(Revised July 2011)

Table of Contents Introduction

Terms Commonly Used in Automobile Insurance


Introduction
The responsibilities of owning and driving an automobile include following the financial responsibility laws under the Vehicle Code. The most common way to satisfy the financial responsibility for operating an automobile in California is by purchasing automobile liability insurance. As a consumer it is important to familiarize yourself with automobile insurance terms, so you can understand what coverage the insurance company offers for your protection and what coverage best meets your needs and fulfills your requirements under the law.

If you choose to meet your financial responsibility by purchasing liability insurance, the Department of Motor Vehicles (DMV) outlines minimum limits that you must purchase under Section 16451 of the Vehicle Code. Bodily injury liability limits must meet the minimum of $15,000 per person and $30,000 total for all persons per accident. Property damage liability limits must meet the minimum of $5,000 per accident. * For further information on financial responsibility requirements, contact your local DMV office or speak to a licensed insurance agent or broker.

The California Department of Insurance (CDI), in accordance with California Insurance Code (CIC) Section 12935, has developed a resource list providing general explanation of frequently used automobile insurance terms. You may wish to take this informational brochure to use as a reference when purchasing your personal automobile insurance.

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Terms Commonly Used in Automobile Insurance 

Please click on a letter below to view the terms:

A | BC | D | E | F | G | H | I  | J | K | L  | M  | N  | O| P | QR | S  | T | U | V | W | X | Y | Z

Actual Cash Value (ACV) - Unless otherwise defined in the policy, actual cash value in California means fair market value. The fair market value of an item is the dollar amount that a knowledgeable buyer (under no unusual pressure) is willing to pay, and a knowledgeable seller (under no unusual pressure) is willing to accept.

Additional Equipment Endorsement - Provides coverage for certain parts and equipment that are not installed by the manufacturer. Coverage is subject to a maximum limit listed on the endorsement.

Adjuster - The person who evaluates the damage caused by an accident or other covered loss and determines the amount to be paid under the policy terms.

Agent - A licensed individual or organization authorized to sell and service insurance policies for an insurance company.

Assigned Risk - A driver who is not acceptable to a standard lines insurance company due to a poor driving record and is assigned to an insurance company participating in the assigned risk pool. All insurance companies licensed to sell auto insurance in California agree to accept a share of high-risk drivers based on the percentage of auto policies they issue in the state. (See CAARP)

Automobile Insurance - A type of insurance that protects against losses involving automobiles. Auto policies contain a variety of coverages that can be purchased depending upon the needs and wants of the policyholder. Liability for bodily injury and property damage, medical payments, uninsured motorist, comprehensive, and collision are some of the common coverages offered under an auto insurance policy.

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Binder - A short-term agreement that provides temporary insurance coverage until the policy can be issued or delivered.

Broker - A licensed individual or organization who, on your behalf, sells and services insurance policies.

Broker-Agent - A licensed individual who can act as an agent representing one or more insurance companies and also as a broker dealing with one or more insurance companies representing your interests.

Broker Fee Agreement - The contract between the policyholder and the broker which also specifies the charges for the services rendered by the broker.

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California Automobile Assigned Risk Plan (CAARP) - This plan is available when a driver is unable to purchase private passenger or commercial liability auto coverage because of a poor driving record. (See Assigned Risk)

Commission - A portion of the policy premium that is paid to an agent by the insurance company as compensation for the agent's work.

Commissioner of Insurance - This is the title of the head of the California Department of Insurance.

Comparative Negligence - The percentage of fault shared by each driver in an accident in which both contribute to causing the collision.

Comprehensive Coverage - Pays for damage to your car caused by reason other than collision, such as fire, theft, vandalism, windstorm, flood, et cetera.

Claim - Notice to an insurance company that a loss has occurred which may be covered under the terms and conditions of the policy.

Collision - Pays for damage to your car caused by physical contact with another vehicle or with another object, such as a tree, boulder, guardrail, structure, or person.

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Declarations (DEC) Page - Usually the first page of an insurance policy that contains the full legal name of your insurance company, your name and address, the policy number, effective and expiration dates, premium payable, the amount and types of coverage, deductibles, the vehicle(s) insured, and the vehicle identification numbers (VIN).

Deductible - The amount of the loss that the policyholder is responsible to pay up-front before covered benefits from the insurance company are payable. This is applicable to comprehensive or collision coverage only.

Endorsement- A written agreement that changes the terms of an insurance policy by adding or subtracting coverage.

Exclusion - A contractual provision in an insurance policy that denies or restricts coverage for certain perils, persons, property, or locations.

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First Party- The policyholder (insured) in an insurance contract.

Insured - The policyholder(s) entitled to covered benefits in case of an accident or loss.

Insurer - The insurance company who issues the insurance and agrees to pay for losses and provide covered benefits.

Liability Insurance - Coverage for a policyholder's legal liability resulting from injuries to other persons or damage to their property.

License - A certificate of authority issued by the Department of Insurance to an insurer, agent, broker, or broker-agent to transact insurance business.

Limits - The maximum amount of benefits the insurance company agrees to pay in the event of a loss.

Loan Gap Coverage - This coverage pays the difference between the fair market value of your vehicle and the loan balance owed to your lender. This coverage is available on new vehicles only.

Low Cost Auto - A pilot program for the residents of Los Angeles and San Francisco Counties only, who meet specific lower income requirements. (Administered by CAARP)

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Medical Payments Coverage - Covers the medical costs (up to the specified limit) resulting from an auto accident for you, your family, or others in your car. This coverage pays regardless of fault.

Non-Renewal - The termination of an insurance policy at its normal expiration date.

Policy - A contract that states the rights and duties of the insurance company and the insured.

Premium - The price of insurance paid to the insurance company for a policy.

Premium Finance Company - A lending institution that finances automobile insurance premium for a fee.

Producer - A term used by the insurance industry to refer to agents and brokers.

Quotation - An estimate of the cost of insurance based on the information supplied to the agent, broker, or insurance company.

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Recision - The cancellation of a policy back to its effective date resulting in a return of all premium charged.

Rental Reimbursement Coverage - This coverage pays your expenses to rent an auto if you have a loss covered under Comprehensive or Collision benefits. Coverage is sold based on a daily amount of expense subject to a maximum limit.

Replacement Cost - The amount that it costs to replace lost or damaged property with new property of like kind or quality in the local market.

Salvage - Damaged policyholder property that is legally signed over to an insurer in a loss settlement. Insurance companies sell salvaged property in order to reduce their overall monetary loss.

Second Party - The insurance company in an insurance contract.

Subrogation - The process of recovering the amount of claims damages paid out to a policyholder from the legally liable party. When a company pursues the legally liable third party, they are required to include the policyholder's deductible in the recovery process.

Surcharge - An extra charge applied to the premium by an insurance company, usually applied to an at-fault accident or moving violation.

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Third Party - An individual other than the policyholder or the insurance company who has suffered a loss and may be able to collect compensation under the policy due to the negligent acts or omissions of the policyholder.

Total Loss - Damage or destruction to real or personal property to such extent that it cannot be rebuilt or repaired to its condition prior to the loss or when it would be cost prohibitive to repair or rebuild in comparison to the value of the property prior to the loss.

Towing Coverage - Addition to an automobile policy that pays a specified amount for towing and related labor costs.

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Underinsured Motorist Endorsement - Addition to a Personal Automobile Policy (PAP) that covers an insured who is involved in a collision with a driver who does not have sufficient liability insurance to pay for the damages.

Uninsured Motorist Coverage (UMC) - Provides coverage for a policyholder involved in a collision with a driver who does not have liability insurance or who does not have sufficient liability limits to pay for damages. UMC comes in two parts: uninsured motorist bodily injury (UMBI) and uninsured motorist property damage (UMPD). UMBI coverage pays for injuries to you or any person in your car when there is a collision with an uninsured driver. UMPD coverage pays for the property damage to your car when there is a collision with an identified uninsured driver. UMC must be offered when you purchase liability coverage for your auto. If you decline UMC, you must sign a declination waiver.

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Disclaimer:

  1. The informational sheet is for informational purposes only.
  2. The actual terms of an insurance policy prevail over the information provided in the informational sheet.
  3. In the case of a dispute, the insurance policy is controlling and a court will rely on the policy as it is written in English to resolve the dispute.
  4. The policy is the sole source of rights and obligations of the insurer and the insured.
  5. The information contained in the informational sheets does not create rights or obligations on the part of the insured, the insurer, the agent, the broker, or the state.
  6. The informational sheet is not intended to be a substitute for the actual policy written in English.

If you have any questions or concerns about your personal automobile insurance or any other type of insurance, please contact the CDI (see "Talk to Us" section). We have provided many ways for you to conveniently reach us and look forward to helping you with your insurance issues.

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